Part I: How We Got Here: President Obama to Obamacare to President-elect Trump

One thing that has become clear since the election of Donald Trump is that efforts to repeal or amend the Affordable Care Act (ACA) will be a high priority legislative item for next year’s Congress and the incoming Administration. But to have a better grasp of what the future of health care might look like under the Trump Administration, it is important to understand how the current healthcare landscape came to be. This first post in our blog series, Very Opaque to Slightly Transparent: Shedding Light on the Future of Healthcare, takes us on a brief stroll down memory lane of how and why the ACA became enacted, and how it has helped lead to the developments and trends we have seen in the healthcare industry.

The healthcare landscape prior to the enactment of the ACA was not entirely different to what it is today. As is the case now, a majority of Americans prior to the ACA secured healthcare coverage through their employers, while certain government programs, including Medicare, Medicaid and the Children’s Health Insurance Program (CHIP), provided coverage for seniors and certain poor adults and children. Nevertheless, many Americans grappled with certain inadequacies of the system in place at the time. Generally speaking, insurers had the ability in most states to deny coverage for those with pre-existing conditions, as well as the ability to stop coverage once individuals reached annual or lifetime limits. These practices made it extremely difficult for individuals with poor health histories to obtain adequate health insurance. Further, because Medicaid and CHIP only provided coverage to certain categories of low-asset people (e.g., children, pregnant women and people with disabilities), many Americans found themselves too poor to afford health insurance, but not poor enough or otherwise eligible to qualify for government healthcare benefits. All told, prior to the passage of the ACA, some

45 million Americans lacked health insurance, while tens of millions of others found themselves underinsured. Moreover, health insurance was getting more expensive while incomes for many middle- and low-income families failed to keep up.

Healthcare reform was a major topic during the presidential election of 2008, and following the election, it became a top legislative priority for President Obama and the Democratic-controlled 111th Congress. Many healthcare proposals were debated, ranging from a single-payor, Medicare-for-all-type system, to other more modest proposals, but when dust finally settled in March of 2010, what emerged and was signed into law was the ACA. While the ACA contains an enormous amount of provisions, there are certain core features aimed at addressing the aforementioned problems of the American healthcare system. For example:

To help sicker patients obtain insurance, the ACA requires insurers to offer insurance to any applicant without looking into one’s underlying health status, and eliminates annual and lifetime coverage caps;

To help insurers absorb the risk of taking on sicker patients, the ACA generally requires all individuals to obtain health insurance, and to assist with that, the law creates insurance marketplaces to purchase insurance and provides subsidies to help make insurance more affordable;

The law also provides states with additional federal funding to expand their Medicaid programs to cover more individuals; and

The law contains certain payment incentives to providers to develop systems of coordinated, high quality and efficient care to patients.

While the debate about the efficacy of the ACA continues amongst legislators, economists and healthcare policy analysts, in the years since the ACA’s enactment, there have been some striking developments in the American healthcare system. Some 20 million people have obtained health insurance through ACA programs, and the uninsured rate is now under 9% nationwide, a record low, and down from the 16% right before the passage of the ACA. And while the savings envisioned by many of the payment incentive provisions of the ACA have, by and large, yet to be realized, the industry has seen a large movement in recent years towards providers assuming global risk and investing in population health management. We have also seen a clear trend towards consolidation and convergence on both the payor side and the provider side in the shadow of the ACA.

In the coming weeks, we will take a look at President-elect Trump’s plans for healthcare and the ACA, and examine what a full repeal and a partial repeal might mean for the healthcare industry, and the trends we have seen since the law’s enactment six years ago. Will the current trends continue or stall? Will new developments emerge? Will things change...big league? Until then, stay tuned.

Part 2: Implications of Partial Obamacare Repeal

In Part I of our series, we discussed what the healthcare landscape looked like before the Affordable Care Act (ACA), how the law emerged from the healthcare reform policy debates and some of the major industry developments that have occurred since the law’s enactment. Beyond some of those changes, another significant development during the same time period has been the continued effort by many Republican members of Congress to repeal the ACA, an effort that has been stymied by President Obama and Democrats in Congress. With President-elect Donald Trump entering office shortly, Republicans will soon have perhaps their best opportunity to put that effort into law, though Democrats may still be able to prevent a full repeal of the ACA. This begs an obvious question: what if Republicans are only able to repeal certain portions of the law, while leaving in place other significant provisions? What would this mean for the healthcare industry? This Part II of our blog series takes a look at some of the implications of a partial ACA repeal.

As a result of the 2016 presidential election, Republicans will soon have control of the Presidency, the House of Representatives and the Senate for the first time since the ACA’s enactment. Nevertheless, in order to pass an ACA repeal bill over an almost-certain filibuster threat from Senate Democrats, Republicans may need to use a process known as budget reconciliation, which only requires a simple majority, but only can be used to pass provisions directly affecting the budget. In fact, budget reconciliation was the legislative tool used by Senate Republicans in 2015 in a failed effort to roll back significant portions of the ACA. Accordingly, we look to the “Restoring Americans’ Healthcare Freedom Reconciliation Act of 2015” (“Reconciliation Act”) to predict what a partial repeal scenario might look like.

Legislation modeled on the Reconciliation Act would get rid of the premium and cost-sharing subsidies that currently exist in the ACA exchanges and help millions of eligible Americans afford health insurance. The expansion of Medicaid, along with the individual mandate - which takes the form of tax penalties for those who fail to maintain insurance coverage - would go by the wayside. Other taxes designed to fund ACA programs would also be eliminated. What would remain, however, are those provisions that cannot reasonably be repealed through the budget reconciliation process: the requirement that insurers not discriminate against individuals with pre-existing conditions, the prohibition on lifetime and annual caps, the ability of children to stay on their parents’ plans until age 26, various changes to Medicare and other provisions that do not directly impact the budget.

If such a bill were enacted under President Trump, the insurance market would be left with the more popular but expensive elements of the ACA, but without the funding mechanisms to offset such costs. The likely result would be the dreaded “death spiral” scenario, in which adverse selection (i.e., healthy Americans dropping coverage while sicker Americans seek or maintain insurance) leads to significant premium increases, causing further declines in coverage nationwide. Under such circumstances, one could expect to see less preventative care with a concomitant increase in patients presenting in the ER. It may be a good time to be an emergency medicine group! At the same time, cuts to Medicaid could seriously harm hospitals, providers and other participants in the healthcare space whose business models depend on the expanded Medicaid dollars available to states under the ACA. A failure to adapt quickly could be cataclysmic for such businesses.

Even in the midst of such uncertainty, however, the move towards population health management initiatives and the assumption of financial risk by providers is likely to continue. Although such developments were perhaps hastened - or at least shone brighter - in the post-ACA healthcare landscape, there is some consensus (to the extent there is concensus on anything healthcare related) around the idea that they make fundamental economic sense for all participants. Data shows that managed care, when done right, can improve health outcomes, reduce unnecessary costs and richly reward both providers and health plans. Similarly, one can reasonably expect further consolidation in the marketplace. In light of the consolidation that has occurred to date, principles of inertia and competition should drive continuation of this trend.

While the partial repeal scenario explored in this post is a definite possibility, it would be foolish to take anything for granted. Given the uncertainty engendered by the political and economic dynamics at play, all we can do is speculate. Which is exactly what we will do in our next post, in which consider another plausible scenario - full repeal and replacement of the ACA.

Part 3: Exploring “Repeal and Replace”

In Part II of our blog series, Very Opaque to Slightly Transparent: Shedding Light on the Future of Healthcare, we considered potential healthcare market consequences of a partial repeal of the Affordable Care Act (ACA). In this Part III, we explore several potential “repeal and replace” scenarios that could unfold under the Trump Administration.Tom Price Plan

Tom Price, President-Elect Trump’s nominee to lead the Department of Health and Human Services, unveiled in 2015 the “Empowering Patients First Act” - legislation that would fully repeal the ACA and replace it with a comprehensive healthcare reform package. Among the core tenets of the Price plan are:

Individuals who purchase health insurance through the individual market would be granted refundable tax credits for purchasing health insurance ranging from $1,200 to $3,000, depending on their age, although these tax credits would not be available to those receiving federal or other benefits, including Medicare, Medicaid, SCHIP and TRICARE. Similarly, individuals in employer subsidized group plans would be ineligible.

People with pre-existing conditions could not be denied coverage if they maintain “continuous coverage” for 18 months before choosing a new policy. However, if an individual ceases to maintain such coverage, insurers can (i) impose pre-existing condition exclusions for up to 18 months, and (ii) raise premiums up to 50% for up to three years. In addition, some federal funds would be available to the states to partially offset the cost of state-sponsored high-risk pools.

The amount of money that companies would be permitted to deduct from their taxes for employee health insurance expenses would be capped at $20,000 for a family health insurance plan and $8,000 for an individual insurance plan.

The Secretary of Health and Human Services would collaborate with various physician/medical organizations to develop clinical guidelines for the evaluation and/or treatment of medical conditions. Such clinical guidelines would provide a safe harbor for medical malpractice defendants who adhered to the guidelines absent clear and convincing evidence establishing liability otherwise. In addition, the Secretary may award grants to states for the development and implementation of administrative healthcare tribunals.

The use of health savings accounts (HSAs) - a mechanism that permits people to contribute pre-tax dollars to accounts dedicated to covering healthcare expenditures - would be incentivized in a number of ways (e.g., availability of a one-time $1,000 tax credit, increase in the allowable HSA contribution limits, ability to roll over an HSA to a surviving spouse and/or other family members).

Insurers licensed to sell policies in one state would be permitted to sell such products in other states.

The expanded Medicaid coverage under the ACA would be eliminated.

Paul Ryan Plan

Paul Ryan, Speaker of the U.S. House of Representatives, also has a widely discussed ACA replacement plan. Titled “A Better Way,” Paul Ryan’s proposal - which is a more of a set of guiding principles than fully developed legislation - has many elements in common with Tom Price’s plan. In particular:

Refundable tax credits of an indeterminate amount (but scaling up with age) would be available to individuals buying insurance plans in markets regulated by the states, not the federal government.

Insurers would be permitted to sell plans across state lines.

Insurers would not be permitted to discriminate against individuals with pre-existing conditions so long as such individuals maintain continuous coverage. A one-time open enrollment period would be available for individuals to join the health care market if they are uninsured, regardless of how healthy they are.

The plan would promote wider use of HSAs.

States would be able to choose whether to accept federal Medicaid funding as a block grant or a per capita cap, with federal funding based on 2016 spending adjusted based on general inflation.

The plan would encourage employers to support and adopt wellness programs.

Changes to medical liability laws would limit the amount of money plaintiffs could recover in malpractice lawsuits.

The government would fund, to some degree, high-risk insurance pools for the sick.

Tax breaks on employer-based premiums would capped.

Richard Burr, Orrin Hatch and Fred Upton Plan

Senators Richard Burr and Orrin Hatch, together with Representative Fred Upton, have also proposed a comprehensive replacement for the ACA. The “Patient Choice, Affordability, Responsibility and Empowerment Act,” also known as the “Patient CARE Act,” has a number notable provisions, many of which align with the Price and Ryan proposals. Specifically:

Insurers would not be permitted to discriminate against individuals with pre-existing conditions as long as such individuals maintain continuous coverage, and there would be a one-time open enrollment period to enable individuals to obtain insurance, regardless of how healthy they are.

Americans would be permitted to purchase coverage across state lines.

Individuals who do not receive employer-sponsored coverage through a large employer (e.g., small business employees or unemployed individuals) would be eligible to receive an age-adjusted, advanceable, refundable tax credit, which would also be scaled to income relative to the federal poverty level.

Reforms would help to expand eligibility for and the use of HSAs.

States would be allowed to utilize default enrollment - e.g., states could create a default enrollment option with premiums equal to the value of the tax credit so that the individual assigned to the plan would not be charged any additional premium. However, individuals would be able to switch plans or opt-out of coverage altogether.

States could leverage high-risk pools with targeted federal funding.

Medical liability reforms would place caps on non-economic damages and limitations on attorneys’ fees. In addition, states could elect to establish “health courts” presided over by judges with health care expertise.

States would receive capped allotment federal Medicaid grants.

Employers’ deductions for employee health insurance expenses would be capped at $30,000 for a family health insurance plan and $12,000 for an individual plan.

Healthcare Market Impact

As outlined above, many of the Republican ACA replacement proposals have common elements. While it is impossible to forecast with any certainty the full effect of any replacement legislation, one can surmise the potential consequences of healthcare legislation modeled off of the above proposals.

One commonality among the plans described above is the enactment of changes to how the federal government funds state Medicaid programs.[1] Generally speaking, Republican healthcare proposals would replace existing federal Medicaid funding structures and move towards block grants or per capita caps. On the one hand, proponents of such a shift in methodology contend that block grants and/or per capita caps would provide states with financial predictability and flexibility in designing and operating their programs in ways that improve the quality of care offered to beneficiaries and reduce costs. On the other hand, critics worry that such a shift could result in insufficient funding, which would force states to take steps to limit enrollment, reduce covered benefits, increase state revenue, and/or lower provider payments. Depending on funding levels and the political tendencies of state legislatures, providers in certain jurisdictions could be at risk for reduced Medicaid revenue.

The proposals described above also would permit insurers to sell insurance plans across state lines. Those in favor of such an idea believe that it would encourage competition by allowing consumers to shop for cheaper insurance policies while simultaneously simplifying operations for insurers. Opponents of such an approach fear a “race to the bottom,” in which insurers seek to locate to states with the least stringent regulations and sick people are priced out of coverage. Regardless of the impact on consumers, such a policy shift could prove to be a boon to companies wishing to enter the health insurance space, as the high costs and regulatory burdens that provide a barrier to entry, at least to some degree, theoretically would be reduced.

Another common element of the plans discussed above is medical malpractice liability reform. Such reforms, proponents argue, would reduce the practice of “defensive medicine” and reduce costs associated with medical malpractice coverage, resulting in overall healthcare cost savings. While the plaintiffs’ bar would certainly not welcome malpractice liability reform, and some consumers (or victims of professional negligence) would likely take umbrage as well, providers could potentially see cost savings and, all things being equal, increased profit margins as the cost of professional liability coverage decreases (though detractors may disagree).

As noted in the last installment in this series, barring a massive shift in the composition of legislature (e.g., Senate Republicans obtaining a filibuster-proof majority in 2018), the buy-in of Congressional Democrats almost certainly will be required to pass legislation to replace the ACA. Consequently, the Republican proposals discussed herein are likely to undergo substantial modification if they are to attract the requisite Democratic support. Nonetheless, healthcare market participants looking to plan for the future could be well-served by understanding the general principles underpinning Republican healthcare reform proposals.

[1] Although the Empowering Patients First Act does not directly provide for Medicaid block grants or per capita caps, Tom Price’s proposed 2016 budget contemplates such block grants.

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